Following an earlier consultation, the government is proposing to allow non-corporate entities to join VAT groups, subject to certain conditions, with a measure included in draft Finance Bill 2018/19
Legislation will be introduced amending Section 43A of VAT Act 1994 to allow a non-corporate entity such as a partnership or individual to join a VAT group with its body corporate subsidiaries provided the non-corporate entity can demonstrate that it controls all of its body corporate subsidiaries.
A partnership can comprise individuals, bodies corporate, Scottish partnerships or a mixture of all of them. For these entities to be eligible they must have a business establishment in the UK and be liable or entitled to be registered for VAT in the UK. They must also control the UK body corporate that they wish to group with.
A body corporate is regarded as controlling another body corporate if it is the body corporate’s holding company, or if it is empowered by statue to control the body corporate.
HMRC says secondary legislation in the VAT (Groups: eligibility) Order 2004 will be amended to prevent a misuse of the new VAT grouping eligibility criteria.
The change follows a consultation on the scope of VAT grouping carried out in late 2016 following the decisions of the Court of Justice of the European Union (CJEU) in Larentia + Minerva and Marenave (C-108/14 and C-109/14) and Skandia America Corporation (C-7/13).
The measure will have effect after the date of Royal Assent to Finance Bill 2018-19, on a day to be appointed by Treasury regulations. It is expected to decrease VAT receipts by a negligible amount, with the final costing to be set out at Budget 2018.
HMRC says it will update its VAT guidance after Royal Assent.
VAT grouping eligibility criteria changes is here.
Report by Pat Sweet
